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Traditional investments have ways of generating and returning money without selling the asset itself. For example, stocks in companies can pay dividends, real e

by sime2009 4y ago

Traditional investments have ways of generating and returning money without selling the asset itself. For example, stocks in companies can pay dividends, real estate can return money by renting out properties. They are positive sum games and the risk of loosing money is much lower. Speculating, like gambling is a zero sum game (at best). Any gains come directly from other players. They are inherently risky. There is a qualitative difference here.

lordnacho 4y ago
No, GP is right. "Speculating" is merely a loaded term for investment that the writer does not approve of. There's any number of plausible reasons why one person's investment is another's speculation: - Is technical analysis investing or speculating? - How much do you need to know to call it an investment? Do you just need to have heard of FTX, or do you need to have gone to visit for due diligence? - How do you know it's zero sum? A business model may appear later that makes it positive sum. EOTD we're talking about decisions under uncertainty. That's literally all decisions. > Traditional investments have ways of generating and returning money without selling the asset itself. For example, stocks in companies can pay dividends, real estate can return money by renting out properties. They are positive sum games and the risk of loosing money is much lower. This part is particularly suspect. Let's say I make a crypto exchange and sell shares in the company. Let's say it pays dividends. Is buying my shares speculating or investing? Look at real estate, your other example. There's a massive real estate collapse going on right now, with enough empty units to fit all of Germany in it. Is that speculating or investing?
- twawaaay 4y ago
  I would just like to point out this piece of financial knowledge: Dividends are actually the same as selling a piece of your investment. The moment dividends are paid the share price falls by exactly the amount of dividend paid. One way to think is that the second before the dividends are paid everybody included the dividend in the valuation of the share price. They expect the dividend to be paid to them. One second after the dividend was paid they no longer include it in the valuation making the share price worth less to them exactly by the amount of dividend paid. If you had a piggy bank with $100 bill in it and a cookie that is promised to you if you hold the piggy bank with the bill in it at certain time, the piggy bank is worth $100 and a cookie. But once the deadline passes you can no longer get the cookie and the piggy bank converts to being just a regular piggy bank with $100 bill and no cookie promised. Another way to think is that the company just gave off 1% of their value to shareholders in form of cash making the company 1% poorer. So if you had a share price of $100 and you expected $1 dividend, the second after the dividend is paid you are left with a share worth $99 and $1 in cash which is exactly what would happen if you just sold 1% of your shares. And because nobody is surprised by the dividend, the fact of paying it has already been included in the valuation well in advance of payment. There is no reason for the valuation to change due to payment of the dividend (other than the company losing exactly the value they paid in dividend). So, to summarise: >> Traditional investments have ways of generating and returning money without selling the asset itself This is false, as shown by my above explanation. Dividends are not generating anything and are actually the same as selling portion of your asset.
  - adammarples 4y ago
    This is somewhat gigantically missing the point. Traditional investments have some kind of income stream based on actually creating value. When a company makes money to disburse me as dividends, they have actually created value and been able to generate some money in exchange. Therefore they can distribute the income without the company itself being cannabilised and sold to a greater fool. You could squint at it and consider that they are selling 1% of the company each time, but ignore the fact that they're also growing the company by 1% each time by creating real world value in their activities.
  - hahajk 4y ago
    No, investments generate income. Buying a house and renting it out is an investment. The value of the house doesn't fall because it's generating rent. Buying a house with the intention of reselling it a year later is speculation. Buying a car for your taxi service is an investment because the car now generates income for you. Buying gold, crypto, or money markets is always speculation because these things do not generate income.
    - lordnacho 4y ago
      You can lend out your crypto for interest. Now it's an investment? Sorry but the distinction between asset values and cash flows is not material. I've worked with derivatives for many years and they're all accounted for together, like the GP says.
  - rjmunro 4y ago
    The point is if the company doesn't pay dividends, what will it do with the money? It has to grow, and growing isn't always a good idea. It means they have to expand either by being more competitive (cheaper, undercutting their existing business, less profits) or by moving into a market they don't know about (risky, might loose it all). Looking at it another way, what's the point in owning stock in a company that never pays dividends. There's no point a company making profit unless they give that profit out. > Dividends are actually the same as selling a piece of your investment. Who are you going to sell the piece to? If it's back to the company as part of a share buyback, then yes, it's the same. If it's to someone else, then no, by not paying a dividend, the company now has to spend that money on something useful that will generate a return and mean it can pay a dividend in future.
- hahajk 4y ago
  Buying more expensive manufacturing equipment for your factory is an investment, even if the value of that machine falls after you buy it. Investments generate an ROI, like the parent gave examples of (rent, dividends, the production of goods). Speculation is about arbitrage and reselling things at higher prices.

lordnacho 4y ago

No, GP is right. "Speculating" is merely a loaded term for investment that the writer does not approve of. There's any number of plausible reasons why one person's investment is another's speculation: - Is technical analysis investing or speculating? - How much do you need to know to call it an investment? Do you just need to have heard of FTX, or do you need to have gone to visit for due diligence? - How do you know it's zero sum? A business model may appear later that makes it positive sum. EOTD we're talking about decisions under uncertainty. That's literally all decisions. > Traditional investments have ways of generating and returning money without selling the asset itself. For example, stocks in companies can pay dividends, real estate can return money by renting out properties. They are positive sum games and the risk of loosing money is much lower. This part is particularly suspect. Let's say I make a crypto exchange and sell shares in the company. Let's say it pays dividends. Is buying my shares speculating or investing? Look at real estate, your other example. There's a massive real estate collapse going on right now, with enough empty units to fit all of Germany in it. Is that speculating or investing?

twawaaay 4y ago
I would just like to point out this piece of financial knowledge: Dividends are actually the same as selling a piece of your investment. The moment dividends are paid the share price falls by exactly the amount of dividend paid. One way to think is that the second before the dividends are paid everybody included the dividend in the valuation of the share price. They expect the dividend to be paid to them. One second after the dividend was paid they no longer include it in the valuation making the share price worth less to them exactly by the amount of dividend paid. If you had a piggy bank with $100 bill in it and a cookie that is promised to you if you hold the piggy bank with the bill in it at certain time, the piggy bank is worth $100 and a cookie. But once the deadline passes you can no longer get the cookie and the piggy bank converts to being just a regular piggy bank with $100 bill and no cookie promised. Another way to think is that the company just gave off 1% of their value to shareholders in form of cash making the company 1% poorer. So if you had a share price of $100 and you expected $1 dividend, the second after the dividend is paid you are left with a share worth $99 and $1 in cash which is exactly what would happen if you just sold 1% of your shares. And because nobody is surprised by the dividend, the fact of paying it has already been included in the valuation well in advance of payment. There is no reason for the valuation to change due to payment of the dividend (other than the company losing exactly the value they paid in dividend). So, to summarise: >> Traditional investments have ways of generating and returning money without selling the asset itself This is false, as shown by my above explanation. Dividends are not generating anything and are actually the same as selling portion of your asset.
- adammarples 4y ago
  This is somewhat gigantically missing the point. Traditional investments have some kind of income stream based on actually creating value. When a company makes money to disburse me as dividends, they have actually created value and been able to generate some money in exchange. Therefore they can distribute the income without the company itself being cannabilised and sold to a greater fool. You could squint at it and consider that they are selling 1% of the company each time, but ignore the fact that they're also growing the company by 1% each time by creating real world value in their activities.
- hahajk 4y ago
  No, investments generate income. Buying a house and renting it out is an investment. The value of the house doesn't fall because it's generating rent. Buying a house with the intention of reselling it a year later is speculation. Buying a car for your taxi service is an investment because the car now generates income for you. Buying gold, crypto, or money markets is always speculation because these things do not generate income.
  - lordnacho 4y ago
    You can lend out your crypto for interest. Now it's an investment? Sorry but the distinction between asset values and cash flows is not material. I've worked with derivatives for many years and they're all accounted for together, like the GP says.
- rjmunro 4y ago
  The point is if the company doesn't pay dividends, what will it do with the money? It has to grow, and growing isn't always a good idea. It means they have to expand either by being more competitive (cheaper, undercutting their existing business, less profits) or by moving into a market they don't know about (risky, might loose it all). Looking at it another way, what's the point in owning stock in a company that never pays dividends. There's no point a company making profit unless they give that profit out. > Dividends are actually the same as selling a piece of your investment. Who are you going to sell the piece to? If it's back to the company as part of a share buyback, then yes, it's the same. If it's to someone else, then no, by not paying a dividend, the company now has to spend that money on something useful that will generate a return and mean it can pay a dividend in future.
hahajk 4y ago
Buying more expensive manufacturing equipment for your factory is an investment, even if the value of that machine falls after you buy it. Investments generate an ROI, like the parent gave examples of (rent, dividends, the production of goods). Speculation is about arbitrage and reselling things at higher prices.